transferring SEP IRA to vanguard solo 401k via fidelity

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dmlr06
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transferring SEP IRA to vanguard solo 401k via fidelity

Post by dmlr06 »

I am an independent contractor with an LLC. I have a SEP IRA managed by a financial advisor but want to switch to a solo 401k that I manage myself. I want to use Vanguard. I know their solo 401k doesn't allow rollovers from a SEP IRA. I'm looking at rolling the SEP over to fidelity and then rolling the 401k from fidelity to Vanguard. Has anyone here done that? Any tips? Will I be penalized if I only have the solo 401k at Fidelity for a few days or weeks? Any extra fees for the short term?
Thanks!
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siamond
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Re: transferring SEP IRA to vanguard solo 401k via fidelity

Post by siamond »

Why wouldn't you manage your SEP-IRA yourself? Say good-bye to the advisor, and that's it, you're done... Over time, once you retire, you should roll-over everything on a traditional IRA anyway. Keep it simple for now.
ERISA Stone
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Re: transferring SEP IRA to vanguard solo 401k via fidelity

Post by ERISA Stone »

Does Vanguard really allow you to skirt their rules like this? In retirement plans, you must maintain account balances by source, i.e., 401k, profit sharing, match, rollover, etc. It seems to me that Vanguard doesn't care how the rollover contribution is in the plan, but if it's in the plan, they won't administer the individual 401k.

If you have a plan document that says rollovers aren't allowed, but you have rollover source, then you aren't operating the plan according to the terms of the plan document. You could grandfather sources from previous documents, but I don't think that's something any individual 401k plan vendor is going to do, considering the simplicity of their documents.

Do some on the board actually have experience doing this to get around Vanguard's rollover exclusion?
jjface
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Re: transferring SEP IRA to vanguard solo 401k via fidelity

Post by jjface »

I am no expert but I don't see why you can't. Fidelity allows you to rollover into their i401k and it is okay to move your i401k to another provider via a plan restatement.

I'd consider doing the rollover in one year and then moving to vanguard in another to be safe and free of issues. You might even see thay fidelity is the better place for it!
retiredjg
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Re: transferring SEP IRA to vanguard solo 401k via fidelity

Post by retiredjg »

Awhile back, people said you could roll an IRA into a Fidelity solo 401k and then roll that into a Vanguard solo 401k. But lately people have said that the Vanguard solo 401k does not allow inbound rollovers even from other 401ks. I don't know which is correct. You will have to ask Vanguard (and perhaps you can tell us what you find out).

Even if you can do it, I doubt (but don't know) you can use the Fido solo 401k for a short while. I think that 401k plans are done by the year.

There are other solutions to your problem though. As already mentioned, you can manage your SEP yourself (after moving it to a better place). Or you could just leave your solo 401k at Fidelity. They have an excellent list of index funds (including target index funds) that should suit your needs.
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tfb
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Re: transferring SEP IRA to vanguard solo 401k via fidelity

Post by tfb »

dmlr06 wrote:I am an independent contractor with an LLC. I have a SEP IRA managed by a financial advisor but want to switch to a solo 401k that I manage myself. I want to use Vanguard. I know their solo 401k doesn't allow rollovers from a SEP IRA. I'm looking at rolling the SEP over to fidelity and then rolling the 401k from fidelity to Vanguard.
Don't do that. After you rollover the SEP to a Fidelity solo 401k, just stay there. You get better service and lower cost that way. Vanguard's solo 401k doesn't allow investing in Admiral shares or ETFs. At Fidelity you can invest in its Premium class shares, which have the same or lower cost than Vanguard's Admiral shares.
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jjface
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Re: transferring SEP IRA to vanguard solo 401k via fidelity

Post by jjface »

retiredjg wrote:Awhile back, people said you could roll an IRA into a Fidelity solo 401k and then roll that into a Vanguard solo 401k. But lately people have said that the Vanguard solo 401k does not allow inbound rollovers even from other 401ks. I don't know which is correct. You will have to ask Vanguard (and perhaps you can tell us what you find out).

Even if you can do it, I doubt (but don't know) you can use the Fido solo 401k for a short while. I think that 401k plans are done by the year.

There are other solutions to your problem though. As already mentioned, you can manage your SEP yourself (after moving it to a better place). Or you could just leave your solo 401k at Fidelity. They have an excellent list of index funds (including target index funds) that should suit your needs.
It isn't a rollover from one i401k to i401k. You would transfer the fidelity plan to vanguard as a restatement/amendment. There is a section on the vanguard i401k forms to specify this. So yes it is allowed. Typically you would specify the beginning of the year as the effective date otherwise there may be complications. So I would suggest the transfer happens the year after the sep ira rollover to be safe.
ERISA Stone
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Re: transferring SEP IRA to vanguard solo 401k via fidelity

Post by ERISA Stone »

jjface wrote:
retiredjg wrote:Awhile back, people said you could roll an IRA into a Fidelity solo 401k and then roll that into a Vanguard solo 401k. But lately people have said that the Vanguard solo 401k does not allow inbound rollovers even from other 401ks. I don't know which is correct. You will have to ask Vanguard (and perhaps you can tell us what you find out).

Even if you can do it, I doubt (but don't know) you can use the Fido solo 401k for a short while. I think that 401k plans are done by the year.

There are other solutions to your problem though. As already mentioned, you can manage your SEP yourself (after moving it to a better place). Or you could just leave your solo 401k at Fidelity. They have an excellent list of index funds (including target index funds) that should suit your needs.
It isn't a rollover from one i401k to i401k. You would transfer the fidelity plan to vanguard as a restatement/amendment. There is a section on the vanguard i401k forms to specify this. So yes it is allowed. Typically you would specify the beginning of the year as the effective date otherwise there may be complications. So I would suggest the transfer happens the year after the sep ira rollover to be safe.
Can you provide the page number of the i401k package that specifies this? I'm having trouble something that references this. I see where you can select the plan is pre-existing, but I don't see any language there referencing an indirect rollover transfer.

Here are the Vanguard documents. https://personal.vanguard.com/us/Litera ... dorID=S571
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Re: transferring SEP IRA to vanguard solo 401k via fidelity

Post by tfb »

ERISA Stone wrote:Can you provide the page number of the i401k package that specifies this? I'm having trouble something that references this. I see where you can select the plan is pre-existing, but I don't see any language there referencing an indirect rollover transfer.

Here are the Vanguard documents. https://personal.vanguard.com/us/Litera ... dorID=S571
My position is Vanguard has been illegally refusing incoming rollover contributions. Section 3.07 says
Unless otherwise elected in the Adoption Agreement, an Employee may make Indirect Rollover and Direct Rollover contributions to the Plan from distributions made from plans described in Code sections 401(a), 403(a), 403(b), 408, and 457(b) ...
Nothing in the Adoption Agreement elects otherwise. Not worth fighting, however. Just go to Fidelity and stay there.
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ERISA Stone
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Re: transferring SEP IRA to vanguard solo 401k via fidelity

Post by ERISA Stone »

tfb wrote:
ERISA Stone wrote:Can you provide the page number of the i401k package that specifies this? I'm having trouble something that references this. I see where you can select the plan is pre-existing, but I don't see any language there referencing an indirect rollover transfer.

Here are the Vanguard documents. https://personal.vanguard.com/us/Litera ... dorID=S571
My position is Vanguard has been illegally refusing incoming rollover contributions. Section 3.07 says
Unless otherwise elected in the Adoption Agreement, an Employee may make Indirect Rollover and Direct Rollover contributions to the Plan from distributions made from plans described in Code sections 401(a), 403(a), 403(b), 408, and 457(b) ...
Nothing in the Adoption Agreement elects otherwise. Not worth fighting, however. Just go to Fidelity and stay there.
I understand what you're saying, and I agree it reads that way. However, a contribution source should (must?) be selected in the adoption agreement.
jjface
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Re: transferring SEP IRA to vanguard solo 401k via fidelity

Post by jjface »

Vanguard ran me through how to fill out the forms to move my solo 401k to vanguard from fidelity. I didn"t go through with it all the way becuase of issues with vanguard on other matters but from my discussions it certainly is possible to transfer a solo 401k from fidelity to vanguard.

From the individual 401k kit and in particular the adoption agreement on page 1 you would select Section 1 Part B Existing plan amendment or restatement and fill out the dates.

The page before that explaining how to fill out the agreement states
Part B ... If you are restating or amending a plan, including transferring your current plan into a new vanguard Individual 401k ....
I just had to fill out a transfer of assets form to move the assets. There is an individual 401k asset transfer form INDATF to use that is not in the main pack (it is buried deep in the vanguard website!). It lists i401k to i401k, profit sharing to i401k, Individual (ind) roth 401k to ind roth 401k, Ind suspense 401k to ind suspense 401k, and profit sharing suspense to ind suspense 401k as the options.

If you cannot find it let me know and I will post a copy for you to download.
Last edited by jjface on Fri Sep 16, 2016 3:41 pm, edited 1 time in total.
ERISA Stone
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Re: transferring SEP IRA to vanguard solo 401k via fidelity

Post by ERISA Stone »

jjface wrote:Vanguard ran me through how to fill out the forms to move my solo 401k to vanguard from fidelity. I didn"t go through with it all the way becuase of issues with vanguard on other matters but from my discussions it certainly is possible to transfer a solo 401k from fidelity to vanguard.

From the individual 401k kit and in particular the adoption agreement on page 1 you would select Section 1 Part B Existing plan amendment or restatement and fill out the dates.

The page before that explaining how to fill out the agreement states
Part B ... If you are restating or amending a plan, including transferring your current plan into a new vanguard Individual 401k ....
I just had to fill out a transfer of assets form to move the assets. There is an individual 401k asset transfer form INDATF to use that is not in the main pack. It lists i401k to i401k, profit sharing to i401k, Ind roth 401k to ind roth 401k, Ind suspense 401k to ind suspense 401k, ans profit sharing suspense to ind suspense 401k as the options.
Your previous comment implied to me that you transferred a rollover source to a Vanguard individual 401k plan, meaning your transfer had 401k funds, possibly profit sharing, and an amount attributed to a rollover. Is this the case?
jjface
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Re: transferring SEP IRA to vanguard solo 401k via fidelity

Post by jjface »

ERISA Stone wrote:
jjface wrote:Vanguard ran me through how to fill out the forms to move my solo 401k to vanguard from fidelity. I didn"t go through with it all the way becuase of issues with vanguard on other matters but from my discussions it certainly is possible to transfer a solo 401k from fidelity to vanguard.

From the individual 401k kit and in particular the adoption agreement on page 1 you would select Section 1 Part B Existing plan amendment or restatement and fill out the dates.

The page before that explaining how to fill out the agreement states
Part B ... If you are restating or amending a plan, including transferring your current plan into a new vanguard Individual 401k ....
I just had to fill out a transfer of assets form to move the assets. There is an individual 401k asset transfer form INDATF to use that is not in the main pack. It lists i401k to i401k, profit sharing to i401k, Ind roth 401k to ind roth 401k, Ind suspense 401k to ind suspense 401k, ans profit sharing suspense to ind suspense 401k as the options.
Your previous comment implied to me that you transferred a rollover source to a Vanguard individual 401k plan, meaning your transfer had 401k funds, possibly profit sharing, and an amount attributed to a rollover. Is this the case?
No a i401k to i401k which is what the op is contemplating doing ie sep ira to fidelity i401k to vanguard i401k.

Once the sep funds are in the fidelity i401k they will not be separately identified as rollover funds I believe (unless I'm missing something?) so in essence the op is just wanting to do a straight i401k to i401k transfer.

Again I am not an expert at all so if there are any errors feel free to point them out. This is all just from my experience trying to transfer a fidelity i401k to a vanguard i401k together with discussions directly with a vanguard small business rep (who was very helpful).
retiredjg
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Re: transferring SEP IRA to vanguard solo 401k via fidelity

Post by retiredjg »

jjface wrote:It isn't a rollover from one i401k to i401k. You would transfer the fidelity plan to vanguard as a restatement/amendment.
Thanks. That does make a difference that I had not considered.
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Re: transferring SEP IRA to vanguard solo 401k via fidelity

Post by ERISA Stone »

jjface wrote:
ERISA Stone wrote:
jjface wrote:Vanguard ran me through how to fill out the forms to move my solo 401k to vanguard from fidelity. I didn"t go through with it all the way becuase of issues with vanguard on other matters but from my discussions it certainly is possible to transfer a solo 401k from fidelity to vanguard.

From the individual 401k kit and in particular the adoption agreement on page 1 you would select Section 1 Part B Existing plan amendment or restatement and fill out the dates.

The page before that explaining how to fill out the agreement states
Part B ... If you are restating or amending a plan, including transferring your current plan into a new vanguard Individual 401k ....
I just had to fill out a transfer of assets form to move the assets. There is an individual 401k asset transfer form INDATF to use that is not in the main pack. It lists i401k to i401k, profit sharing to i401k, Ind roth 401k to ind roth 401k, Ind suspense 401k to ind suspense 401k, ans profit sharing suspense to ind suspense 401k as the options.
Your previous comment implied to me that you transferred a rollover source to a Vanguard individual 401k plan, meaning your transfer had 401k funds, possibly profit sharing, and an amount attributed to a rollover. Is this the case?
No a i401k to i401k which is what the op is contemplating doing ie sep ira to fidelity i401k to vanguard i401k.

Once the sep funds are in the fidelity i401k they will not be separately identified as rollover funds I believe (unless I'm missing something?) so in essence the op is just wanting to do a straight i401k to i401k transfer.

Again I am not an expert at all so if there are any errors feel free to point them out. This is all just from my experience trying to transfer a fidelity i401k to a vanguard i401k together with discussions directly with a vanguard small business rep (who was very helpful).
They should always be identified as rollover funds. Even for a individual 401k, someone should be recordkeeping the account balance by source (source = 401k, profit sharing, rollover, match, etc). The OP is trying to get around Vanguard's position of not allowing rollover contributions by depositing a rollover in a Fidelity i401k, then restating the plan on a Vanguard document and transferring the account balance to Vanguard.

I'm skeptical that this would be acceptable from Vanguard's perspective. As TFB already pointed out, the right move appears to be stay at Fidelity.
jjface
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Re: transferring SEP IRA to vanguard solo 401k via fidelity

Post by jjface »

ERISA Stone wrote:
jjface wrote:
ERISA Stone wrote:
jjface wrote:Vanguard ran me through how to fill out the forms to move my solo 401k to vanguard from fidelity. I didn"t go through with it all the way becuase of issues with vanguard on other matters but from my discussions it certainly is possible to transfer a solo 401k from fidelity to vanguard.

From the individual 401k kit and in particular the adoption agreement on page 1 you would select Section 1 Part B Existing plan amendment or restatement and fill out the dates.

The page before that explaining how to fill out the agreement states
Part B ... If you are restating or amending a plan, including transferring your current plan into a new vanguard Individual 401k ....
I just had to fill out a transfer of assets form to move the assets. There is an individual 401k asset transfer form INDATF to use that is not in the main pack. It lists i401k to i401k, profit sharing to i401k, Ind roth 401k to ind roth 401k, Ind suspense 401k to ind suspense 401k, ans profit sharing suspense to ind suspense 401k as the options.
Your previous comment implied to me that you transferred a rollover source to a Vanguard individual 401k plan, meaning your transfer had 401k funds, possibly profit sharing, and an amount attributed to a rollover. Is this the case?
No a i401k to i401k which is what the op is contemplating doing ie sep ira to fidelity i401k to vanguard i401k.

Once the sep funds are in the fidelity i401k they will not be separately identified as rollover funds I believe (unless I'm missing something?) so in essence the op is just wanting to do a straight i401k to i401k transfer.

Again I am not an expert at all so if there are any errors feel free to point them out. This is all just from my experience trying to transfer a fidelity i401k to a vanguard i401k together with discussions directly with a vanguard small business rep (who was very helpful).
They should always be identified as rollover funds. Even for a individual 401k, someone should be recordkeeping the account balance by source (source = 401k, profit sharing, rollover, match, etc). The OP is trying to get around Vanguard's position of not allowing rollover contributions by depositing a rollover in a Fidelity i401k, then restating the plan on a Vanguard document and transferring the account balance to Vanguard.

I'm skeptical that this would be acceptable from Vanguard's perspective. As TFB already pointed out, the right move appears to be stay at Fidelity.
I see you would identify rollovers separately on 5500-ez but that is for the IRS. I don't see how that would matter to vanguard. The funds are not separated in the account and I assume fidelity isn't tracking it either. Plus the rollover would have happened before transfer to vanguard.

But yes I would just stick with fidelity as well. A better solo 401k and no point risking these things unless essential. On principal though I can't see vanguard not allowing it or that there are any rules to stop it.
ERISA Stone
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Re: transferring SEP IRA to vanguard solo 401k via fidelity

Post by ERISA Stone »

jjface wrote:
ERISA Stone wrote:
jjface wrote:
ERISA Stone wrote:
jjface wrote:Vanguard ran me through how to fill out the forms to move my solo 401k to vanguard from fidelity. I didn"t go through with it all the way becuase of issues with vanguard on other matters but from my discussions it certainly is possible to transfer a solo 401k from fidelity to vanguard.

From the individual 401k kit and in particular the adoption agreement on page 1 you would select Section 1 Part B Existing plan amendment or restatement and fill out the dates.

The page before that explaining how to fill out the agreement states



I just had to fill out a transfer of assets form to move the assets. There is an individual 401k asset transfer form INDATF to use that is not in the main pack. It lists i401k to i401k, profit sharing to i401k, Ind roth 401k to ind roth 401k, Ind suspense 401k to ind suspense 401k, ans profit sharing suspense to ind suspense 401k as the options.
Your previous comment implied to me that you transferred a rollover source to a Vanguard individual 401k plan, meaning your transfer had 401k funds, possibly profit sharing, and an amount attributed to a rollover. Is this the case?
No a i401k to i401k which is what the op is contemplating doing ie sep ira to fidelity i401k to vanguard i401k.

Once the sep funds are in the fidelity i401k they will not be separately identified as rollover funds I believe (unless I'm missing something?) so in essence the op is just wanting to do a straight i401k to i401k transfer.

Again I am not an expert at all so if there are any errors feel free to point them out. This is all just from my experience trying to transfer a fidelity i401k to a vanguard i401k together with discussions directly with a vanguard small business rep (who was very helpful).
They should always be identified as rollover funds. Even for a individual 401k, someone should be recordkeeping the account balance by source (source = 401k, profit sharing, rollover, match, etc). The OP is trying to get around Vanguard's position of not allowing rollover contributions by depositing a rollover in a Fidelity i401k, then restating the plan on a Vanguard document and transferring the account balance to Vanguard.

I'm skeptical that this would be acceptable from Vanguard's perspective. As TFB already pointed out, the right move appears to be stay at Fidelity.
I see you would identify rollovers separately on 5500-ez but that is for the IRS. I don't see how that would matter to vanguard. The funds are not separated in the account and I assume fidelity isn't tracking it either. Plus the rollover would have happened before transfer to vanguard.

But yes I would just stick with fidelity as well. A better solo 401k and no point risking these things unless essential. On principal though I can't see vanguard not allowing it or that there are any rules to stop it.
You're not buying what I'm saying so I'll close with this. Accept it if you want - it's free advice and you're on the internet. A plan sponsor should be keeping up with the plan's account balance by source because sources have different rules. For example, if one were to elect a hardship withdrawal, earnings from the 401k account cannot be distributed. You have no way of knowing the amount attributable to 401k earnings without maintaining balance by source.

Why would Vanguard care? They don't allow rollover contributions to their individual 401k plans. So I am making a logical inference that because they don't allow rollover contributions, in turn, they might not allow a rollover source. I may not be correct, but it's not a difficult leap to make. Like I said, I'm skeptical.

As TBF already said, technically their plan document that is provided to individual 401k owners seems to say that rollover contributions are allowed. However, based on a lot of data points from this website, I think it's safe to say Vanguard allows it in practice.
ERISA Stone
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Re: transferring SEP IRA to vanguard solo 401k via fidelity

Post by ERISA Stone »

tfb wrote:
ERISA Stone wrote:Can you provide the page number of the i401k package that specifies this? I'm having trouble something that references this. I see where you can select the plan is pre-existing, but I don't see any language there referencing an indirect rollover transfer.

Here are the Vanguard documents. https://personal.vanguard.com/us/Litera ... dorID=S571
My position is Vanguard has been illegally refusing incoming rollover contributions. Section 3.07 says
Unless otherwise elected in the Adoption Agreement, an Employee may make Indirect Rollover and Direct Rollover contributions to the Plan from distributions made from plans described in Code sections 401(a), 403(a), 403(b), 408, and 457(b) ...
Nothing in the Adoption Agreement elects otherwise. Not worth fighting, however. Just go to Fidelity and stay there.
Now that I've had a glass of wine to ponder this, I'm curious if the language may be a clever way of excluding individual 401k plans. What code section listed above covers individual 401k plans? i401ks aren't covered by ERISA.
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Re: transferring SEP IRA to vanguard solo 401k via fidelity

Post by tfb »

ERISA Stone wrote:Now that I've had a glass of wine to ponder this, I'm curious if the language may be a clever way of excluding individual 401k plans. What code section listed above covers individual 401k plans? i401ks aren't covered by ERISA.
401(a) covers it. Profit sharing plan with a CODA.
(a) Requirements for qualification

A trust created or organized in the United States and forming part of a stock bonus, pension, or profit-sharing plan of an employer for the exclusive benefit of his employees or their beneficiaries shall constitute a qualified trust under this section ...

(k) Cash or deferred arrangements
(1) General rule
A profit-sharing or stock bonus plan, a pre-ERISA money purchase plan, or a rural cooperative plan shall not be considered as not satisfying the requirements of subsection (a) merely because the plan includes a qualified cash or deferred arrangement.
https://www.law.cornell.edu/uscode/text/26/401
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michelef
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Re: transferring SEP IRA to vanguard solo 401k via fidelity

Post by michelef »

I did exactly what you are contemplating without any problems about 1-2 years ago. We chose a round trip back to Vanguard, but considering you are restricted to Investor shares, I'd agree you may want to leave the i401k at Fidelity for the cost advantage.
Sajsa
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Re: transferring SEP IRA to vanguard solo 401k via fidelity

Post by Sajsa »

Hi all,

I'm late to the forum but I have learned that as a high income earner, we can do back door roth conversion from an individual 401k (i401k). I currently have a sep ira at VG. I am going to rollover my sep ira into an i401k at fidelity. Per conversation w Fidelity, I have learned I need to open a traditional IRA (tIRA) as a medium through which I can transfer $5500/yr from the i401k to a Roth aka Back door roth conversion.

A. Please opine on whether below steps are correct:

1. Rollover SepIRA from VG into i401k Fidelity. (If current year contributions have been made, MUST withdraw 'excess funds' to be at ZERO for the 2018 year in contributions.)
2. Open tIRA at Fidelity.
3. Each year, convert $5500 from tIRA into Roth via 'Back door Roth conversion"

B. I understand from reading previous posts that VG does not allow purchase of admiral shares in the i401k. Is this correct?

C. For those of you who have done the above, are you now happy at Fidelity, ie w ETFs and Index funds there?
Are we able to keep our VG ETFs and IFs when we go to fidelity?

Please answer only if you are certain. We all have opinions here but only some are certain.

Thanks!
AJ
retiredjg
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Re: transferring SEP IRA to vanguard solo 401k via fidelity

Post by retiredjg »

Sajsa wrote: Tue Mar 06, 2018 11:02 am Hi all,

I'm late to the forum but I have learned that as a high income earner, we can do back door roth conversion from an individual 401k (i401k). I currently have a sep ira at VG. I am going to rollover my sep ira into an i401k at fidelity. Per conversation w Fidelity, I have learned I need to open a traditional IRA (tIRA) as a medium through which I can transfer $5500/yr from the i401k to a Roth aka Back door roth conversion.

A. Please opine on whether below steps are correct:

1. Rollover SepIRA from VG into i401k Fidelity. (If current year contributions have been made, MUST withdraw 'excess funds' to be at ZERO for the 2018 year in contributions.)
2. Open tIRA at Fidelity.
3. Each year, convert $5500 from tIRA into Roth via 'Back door Roth conversion"

B. I understand from reading previous posts that VG does not allow purchase of admiral shares in the i401k. Is this correct?

C. For those of you who have done the above, are you now happy at Fidelity, ie w ETFs and Index funds there?
Are we able to keep our VG ETFs and IFs when we go to fidelity?

Please answer only if you are certain. We all have opinions here but only some are certain.

Thanks!
AJ
Sajsa, I'm not sure if you are confused about this or maybe you simply mis-spoke. You said two different things in your post. However, you said the wrong thing twice and the right thing once, so I'm not sure if you really understand this.

You do not do the "back door" by moving money out of the i401k. The "back door" starts with depositing money in a tIRA (not a 401k) and converting that to Roth IRA. If you have anything else called IRA (SEP IRA, SIMPLE IRA, traditional IRA, Rollover IRA) it will get in the way of doing the back door and you probably do not want to do that.

Where the 401k comes in is a place to put your SEP IRA money - to get it out of the way for doing the back door. Other than a place to put your SEP IRA, the 401k is not involved in the back door at all.

People who use Fidelity index funds and their no-transaction fee ETFs seem happy. You should not want to hold Vanguard funds or ETFs at Fidelity because of the transaction fees.

You should not want to open an i401k at Vanguard because their plan would not accept the SEP IRA rollover. Fidelity's plan will.

If you have the type of income that makes you eligible for an individual 401k, Fidelity is a good place to do it. But if you prefer Vanguard funds, you could still have your tIRA and Roth IRA at Vanguard.
Saelina
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Re: transferring SEP IRA to vanguard solo 401k via fidelity

Post by Saelina »

retiredjg wrote: Tue Mar 06, 2018 11:18 am

You do not do the "back door" by moving money out of the i401k. The "back door" starts with depositing money in a tIRA (not a 401k) and converting that to Roth IRA. If you have anything else called IRA (SEP IRA, SIMPLE IRA, traditional IRA, Rollover IRA) it will get in the way of doing the back door and you probably do not want to do that.

I just opened a Sep IRA for 2017. Once I deposit into the sep ira, do I immediately rollover into the traditional IRA so its available for Roth conversion if/when Im ready?

Once you do that, do you open a new sep ira for 2018? How does that work?
Spirit Rider
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Re: transferring SEP IRA to vanguard solo 401k via fidelity

Post by Spirit Rider »

The answer is no, but I am going to let retiredjg followup.

I just want to verify that you have business income to adopt a SEP IRA or a one-participant 401k and make contributions. You didn't mention it in your post.
retiredjg
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Re: transferring SEP IRA to vanguard solo 401k via fidelity

Post by retiredjg »

Saelina wrote: Tue Mar 06, 2018 11:58 am
retiredjg wrote: Tue Mar 06, 2018 11:18 am

You do not do the "back door" by moving money out of the i401k. The "back door" starts with depositing money in a tIRA (not a 401k) and converting that to Roth IRA. If you have anything else called IRA (SEP IRA, SIMPLE IRA, traditional IRA, Rollover IRA) it will get in the way of doing the back door and you probably do not want to do that.

I just opened a Sep IRA for 2017. Once I deposit into the sep ira, do I immediately rollover into the traditional IRA so its available for Roth conversion if/when Im ready?

Once you do that, do you open a new sep ira for 2018? How does that work?
Saelina, I'm not going to be much help here. To my knowledge, SEP IRA has nothing to do with using the back door to get money into Roth IRA.

While a SEP IRA is a type of traditional IRA, a SEP IRA is a work plan, not an individual plan. The back door is used for putting money into an individual Roth IRA (via an individual traditional IRA).

I'm not familiar with how long the money has to stay in SEP IRA before being withdrawn. It is possible you can't withdraw it (without penalty) until your employment ends.

Check out this Wiki page on the back door and see if it helps you understand. Be sure to click on the tutorial by poster tfb

https://www.bogleheads.org/wiki/Backdoor_Roth_IRA

I realize you didn't ask about the back door, but you quoted a discussion about the back door and it seems you might be talking about the back door. Let me know if I misunderstood your question. It is possible you are just talking about SEP.
Saelina
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Re: transferring SEP IRA to vanguard solo 401k via fidelity

Post by Saelina »

retiredjg wrote: Tue Mar 06, 2018 4:24 pm
Saelina, I'm not going to be much help here. To my knowledge, SEP IRA has nothing to do with using the back door to get money into Roth IRA.

While a SEP IRA is a type of traditional IRA, a SEP IRA is a work plan, not an individual plan. The back door is used for putting money into an individual Roth IRA (via an individual traditional IRA).

I'm not familiar with how long the money has to stay in SEP IRA before being withdrawn. It is possible you can't withdraw it (without penalty) until your employment ends.

Check out this Wiki page on the back door and see if it helps you understand. Be sure to click on the tutorial by poster tfb

https://www.bogleheads.org/wiki/Backdoor_Roth_IRA

I realize you didn't ask about the back door, but you quoted a discussion about the back door and it seems you might be talking about the back door. Let me know if I misunderstood your question. It is possible you are just talking about SEP.
Spirit Rider wrote: Tue Mar 06, 2018 3:01 pm The answer is no, but I am going to let retiredjg followup.

I just want to verify that you have business income to adopt a SEP IRA or a one-participant 401k and make contributions. You didn't mention it in your post.
Sorry, I don't know enough yet. I'm an independent contractor and just learned I can contribute to a self-employed sep ira, simple, or 401k. The only one I could set up for last year was the sep ira. I'm waiting on my accountant to give me the numbers for how much I can contribute for 2017, but I see the back door thing mentioned all over the place and I guess I'm trying to understand it's importance and what to do to with the accounts at my disposal in order to do it.
retiredjg
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Re: transferring SEP IRA to vanguard solo 401k via fidelity

Post by retiredjg »

Saelina wrote: Wed Mar 07, 2018 6:56 am Sorry, I don't know enough yet.
Not a problem. People here will help you figure it out.

I'm an independent contractor and just learned I can contribute to a self-employed sep ira, simple, or 401k. The only one I could set up for last year was the sep ira. I'm waiting on my accountant to give me the numbers for how much I can contribute for 2017...
This is good. Do you know yet if you will continue using the SEP IRA as your work plan or are you considering changing that to a Solo (or individual) 401k for 2018? Or if not 2018, some time in the future?

....but I see the back door thing mentioned all over the place and I guess I'm trying to understand it's importance and what to do to with the accounts at my disposal in order to do it.
The "back door" is a method for people who make too much money to contribute to Roth IRA to actually get money into Roth IRA. At this point, it is not even clear that you need the back door. You might be able to contribute to Roth IRA directly.

Do you want to contribute to Roth IRA? Do you know if you can contribute directly to Roth IRA?
Saelina
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Re: transferring SEP IRA to vanguard solo 401k via fidelity

Post by Saelina »

retiredjg wrote: Wed Mar 07, 2018 7:51 am
This is good. Do you know yet if you will continue using the SEP IRA as your work plan or are you considering changing that to a Solo (or individual) 401k for 2018? Or if not 2018, some time in the future?
I was told on the forum that 401k was better but I couldn't do that for last year, just the sep ira because it allowed up to filing deadline. I was thinking of opening one for this year.
The "back door" is a method for people who make too much money to contribute to Roth IRA to actually get money into Roth IRA. At this point, it is not even clear that you need the back door. You might be able to contribute to Roth IRA directly.

Do you want to contribute to Roth IRA? Do you know if you can contribute directly to Roth IRA?
I have both a tIRA and roth IRA. I already contributed 5500 to the tIRA for 2017 and 2018. Im trying to minimize my taxes for 2017, I made more than I had saved for and want to reduce what I have to pay. Not sure yet what I want to do for 2018. I am commission based so it really depends on how much extra I have. I put together a new savings plan for this year so I scoop out the taxes as I go instead of waiting till the end of the year and trying to scramble the funds together. How do you decide which to put your contribution in? Right now I'm close to lowering my tax bracket so I put it in the t-ira. I'm guessing if the lower tax bracket is too far out of reach then you do the roth?
retiredjg
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Re: transferring SEP IRA to vanguard solo 401k via fidelity

Post by retiredjg »

Saelina wrote: Wed Mar 07, 2018 8:18 am I have both a tIRA and roth IRA. I already contributed 5500 to the tIRA for 2017 and 2018. Im trying to minimize my taxes for 2017, I made more than I had saved for and want to reduce what I have to pay. Not sure yet what I want to do for 2018. I am commission based so it really depends on how much extra I have.
Forgive me for asking, but are you already sure you can actually deduct the contribution to tIRA? Even if you know you can deduct in 2017, if you work on commissions, how can you be sure now that you will be under the limit for 2018?

How do you decide which to put your contribution in? Right now I'm close to lowering my tax bracket so I put it in the t-ira. I'm guessing if the lower tax bracket is too far out of reach then you do the roth?
I'm not sure what you are asking. The AGI limit for deducting is not related to a certain tax bracket.

If you are asking how much to put in which account, it depends on your entire picture. In many cases, it is good to put some into tax-deferred accounts (SEP IRA, deductible contributions to tIRA, 401k) and some into Roth IRA too. That way you have "tax diversification".

In other cases, if you are trying to reach a certain level for something, you might want to put everything into a tax-deferred account. An example would be trying to lower your income enough to be eligible for the saver's credit (a credit on your taxes that lower income people can get for putting money away for retirement).
Saelina
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Re: transferring SEP IRA to vanguard solo 401k via fidelity

Post by Saelina »

retiredjg wrote: Wed Mar 07, 2018 8:41 am
Forgive me for asking, but are you already sure you can actually deduct the contribution to tIRA? Even if you know you can deduct in 2017, if you work on commissions, how can you be sure now that you will be under the limit for 2018?
Umm, I don't know! I just assumed. Frankly, I've never even thought about contribution limited based on income. I just looked it up, and I've not made enough in the past to consider it, I've ranged between 45k and 75k. However, I am a bit concerned now for 2018. It's only March and I do already have 64k on the books. If it all closes, and I keep at the same pace, or just double that during the rest of the year, I guess I have a problem. Soo what do I do? I was thinking I was doing great getting my contribution in for the year already :(


I'm not sure what you are asking. The AGI limit for deducting is not related to a certain tax bracket.

If you are asking how much to put in which account, it depends on your entire picture. In many cases, it is good to put some into tax-deferred accounts (SEP IRA, deductible contributions to tIRA, 401k) and some into Roth IRA too. That way you have "tax diversification".
yes, I was asking how to decide which account.

In other cases, if you are trying to reach a certain level for something, you might want to put everything into a tax-deferred account. An example would be trying to lower your income enough to be eligible for the saver's credit (a credit on your taxes that lower income people can get for putting money away for retirement).
Ok, so if one wants to invest a percentage throughout the year I guess its better to do the 401k so you don't have to worry about income limits? That allows you to do 18,500 regardless of how your income fluctuates correct?
Saelina
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Re: transferring SEP IRA to vanguard solo 401k via fidelity

Post by Saelina »

I think I misunderstood what I read. So there aren't income limits to donate to a tIRA correct? Just whether or not you can actually deduct it from taxes? So every year you can put in 5500 regardless of income, just can't deduct it? If so, is that 5500 fine in the tIRA and I just can't write it off?

Income limits to donate to Roth is $118k?
retiredjg
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Re: transferring SEP IRA to vanguard solo 401k via fidelity

Post by retiredjg »

Saelina wrote: Wed Mar 07, 2018 8:55 am
retiredjg wrote: Wed Mar 07, 2018 8:41 am
Forgive me for asking, but are you already sure you can actually deduct the contribution to tIRA? Even if you know you can deduct in 2017, if you work on commissions, how can you be sure now that you will be under the limit for 2018?
Umm, I don't know! I just assumed. Frankly, I've never even thought about contribution limited based on income.
You may not have known because it did not affect you until you were covered by a plan at work (I'm assuming you are single). Until you had a retirement plan at work, all contributions to tIRA were deductible. If you have had previous plans at work, before the SEP IRA, we'll need to figure that out.

Since you are covered at work by your SEP IRA for 2017, the amount you can deduct starts getting phased out (reduced) when your MAGI (modified adjusted gross income) hits $62k. Let's not worry about MAGI just yet and just look at AGI (adjusted gross income) which is the last line (line 37) on the front page of your Form 1040. If the AGI is not higher than $62k for 2017, we won't need to worry about figuring out your MAGI. So, what is your AGI for 2017?

However, I am a bit concerned now for 2018. It's only March and I do already have 64k on the books. If it all closes, and I keep at the same pace, or just double that during the rest of the year, I guess I have a problem. Soo what do I do? I was thinking I was doing great getting my contribution in for the year already :(.
You are doing great!

And this is easy to fix if you find you need to fix it (remember that "on the books" may be a larger number than your MAGI). You simply call your IRA custodian and instruct them to "recharacterize" your 2018 IRA contribution to Roth IRA. They will move the $5,500 and the earnings it has made to Roth IRA. It makes it like you put it in Roth from the beginning. (I'm unsure if you will have to pay tax on that little bit of earnings, but if you do get a 1099 next year for that, don't worry - just pay the tax. )

Ok, so if one wants to invest a percentage throughout the year I guess its better to do the 401k so you don't have to worry about income limits? That allows you to do 18,500 regardless of how your income fluctuates correct?
As long as your income is high enough, yes. So if you are considering opening an individual 401k, you could go ahead and do that and put money in there without worrying about income.

If you do decide to open an individual 401k, consider using Fidelity because they will allow you to roll that SEP IRA into their i401k. Vanguard's plan does not allow that.
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Re: transferring SEP IRA to vanguard solo 401k via fidelity

Post by retiredjg »

Saelina wrote: Wed Mar 07, 2018 9:24 am I think I misunderstood what I read. So there aren't income limits to donate to a tIRA correct? Just whether or not you can actually deduct it from taxes? So every year you can put in 5500 regardless of income, just can't deduct it?
That is correct.
If so, is that 5500 fine in the tIRA and I just can't write it off?
This is correct too. But there is no benefit in putting a non-deductible contribution into tIRA when you could put the same money into Roth IRA.

Income limits to donate to Roth is $118k?
It is not income limits, it is another MAGI which might be less than your income. And yes, the amount a single person could contribute to Roth IRA for 2017 starts to phase out at and MAGI of $118k. The number is $120k for 2018.
Saelina
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Re: transferring SEP IRA to vanguard solo 401k via fidelity

Post by Saelina »

retiredjg wrote: Wed Mar 07, 2018 10:08 am
Since you are covered at work by your SEP IRA for 2017, the amount you can deduct starts getting phased out (reduced) when your MAGI (modified adjusted gross income) hits $62k. Let's not worry about MAGI just yet and just look at AGI (adjusted gross income) which is the last line (line 37) on the front page of your Form 1040. If the AGI is not higher than $62k for 2017, we won't need to worry about figuring out your MAGI. So, what is your AGI for 2017?
Yes, I'm single no dependents. I don't know the actual number yet, waiting on it from my accountant. I earned 65k before deductions, but I anticipate it ending up in the 40's, hoping maybe 30's if I have enough write offs. That would bring me into the lower tax bracket if I ended up under 37k correct?

Just for clarification, you are referring to work doing the sep ira, it's a solo plan that I opened, if that makes a difference?
And this is easy to fix if you find you need to fix it (remember that "on the books" may be a larger number than your MAGI). You simply call your IRA custodian and instruct them to "recharacterize" your 2018 IRA contribution to Roth IRA. They will move the $5,500 and the earnings it has made to Roth IRA. It makes it like you put it in Roth from the beginning. (I'm unsure if you will have to pay tax on that little bit of earnings, but if you do get a 1099 next year for that, don't worry - just pay the tax. )
When I contributed back in Jan my funds were at Merrill Edge. I moved everything over in Feb and set up the 3 fund portfolio. Vanguard doesn't have record of my contribution though, just the transfer. Does that matter?

If you do decide to open an individual 401k, consider using Fidelity because they will allow you to roll that SEP IRA into their i401k. Vanguard's plan does not allow that.
Ok. I had asked Vanguard if I can roll it into my tIRA and they said I could. Why would I roll into 401k vs tIRA?
Saelina
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Re: transferring SEP IRA to vanguard solo 401k via fidelity

Post by Saelina »

retiredjg wrote: Wed Mar 07, 2018 10:12 am
Saelina wrote: Wed Mar 07, 2018 9:24 am I think I misunderstood what I read. So there aren't income limits to donate to a tIRA correct? Just whether or not you can actually deduct it from taxes? So every year you can put in 5500 regardless of income, just can't deduct it?
That is correct.
If so, is that 5500 fine in the tIRA and I just can't write it off?
This is correct too. But there is no benefit in putting a non-deductible contribution into tIRA when you could put the same money into Roth IRA.
I see. So if my AGI is above the 62k I do the Roth unless I reach 120k agi.
retiredjg
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Re: transferring SEP IRA to vanguard solo 401k via fidelity

Post by retiredjg »

Saelina wrote: Wed Mar 07, 2018 10:26 am
retiredjg wrote: Wed Mar 07, 2018 10:08 am
Since you are covered at work by your SEP IRA for 2017, the amount you can deduct starts getting phased out (reduced) when your MAGI (modified adjusted gross income) hits $62k. Let's not worry about MAGI just yet and just look at AGI (adjusted gross income) which is the last line (line 37) on the front page of your Form 1040. If the AGI is not higher than $62k for 2017, we won't need to worry about figuring out your MAGI. So, what is your AGI for 2017?
Yes, I'm single no dependents. I don't know the actual number yet, waiting on it from my accountant. I earned 65k before deductions, but I anticipate it ending up in the 40's, hoping maybe 30's if I have enough write offs. That would bring me into the lower tax bracket if I ended up under 37k correct?
The number to get into the lower (15%) tax bracket for 2017 is $37,950. And yes, if you can get your taxable income below that number, you will be in the 15% tax bracket. Taxable income is found on line 43 of your Form 1040.

This is not the same as getting your MAGI low enough to deduct your IRA deduction though. This is what needs to be figured out before your taxes are filed.

It is possible your accountant is trying to get your income low enough for you to file for the saver's credit. This is something you might want to ask about.

Just for clarification, you are referring to work doing the sep ira, it's a solo plan that I opened, if that makes a difference?
Not sure what you are asking, but since you have the SEP for 2017, you are "covered by a plan at work". "Covered by a plan at work" rules are different from "not covered by a plan at work".

And this is easy to fix if you find you need to fix it (remember that "on the books" may be a larger number than your MAGI). You simply call your IRA custodian and instruct them to "recharacterize" your 2018 IRA contribution to Roth IRA. They will move the $5,500 and the earnings it has made to Roth IRA. It makes it like you put it in Roth from the beginning. (I'm unsure if you will have to pay tax on that little bit of earnings, but if you do get a 1099 next year for that, don't worry - just pay the tax. )
When I contributed back in Jan my funds were at Merrill Edge. I moved everything over in Feb and set up the 3 fund portfolio. Vanguard doesn't have record of my contribution though, just the transfer. Does that matter?
I do not know how this is handled, but there must be some way to do it because people do move IRAs from custodian to custodian.

If you do decide to open an individual 401k, consider using Fidelity because they will allow you to roll that SEP IRA into their i401k. Vanguard's plan does not allow that.
Ok. I had asked Vanguard if I can roll it into my tIRA and they said I could. Why would I roll into 401k vs tIRA?
Rolling it into your tIRA would be fine as well. And if you would prefer to use Vanguard's Solo 401k you could do that and roll the SEP into the IRA, no problem.

Here is the only downside of using Vanguard's Solo 401k I can think of. Right now, you are under the $120k MAGI limit for contributing to Roth IRA. In other words, you can put your contribution into Roth IRA directly - you do not need the back door.

If your income goes up enough that you want to contribute to the Roth IRA but your income is too high, you will want to use the back door and you can't do that effectively with an existing tIRA. So there may come a time you would want to roll your tIRA into your Solo 401k. You can't do that at Vanguard.

Opening your Solo 401k at Fidelity would prevent that future problem (which may never even come to exist). I'm not saying this is what you should do. I'm only pointing it out because it is something you should be aware of. You are already working with Vanguard and if you want all your accounts there, you might want to not worry about your future ability to use the back door at this point.

I hope I have not confused things for you.
retiredjg
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Re: transferring SEP IRA to vanguard solo 401k via fidelity

Post by retiredjg »

Saelina wrote: Wed Mar 07, 2018 10:36 am
retiredjg wrote: Wed Mar 07, 2018 10:12 am
Saelina wrote: Wed Mar 07, 2018 9:24 am I think I misunderstood what I read. So there aren't income limits to donate to a tIRA correct? Just whether or not you can actually deduct it from taxes? So every year you can put in 5500 regardless of income, just can't deduct it?
That is correct.
If so, is that 5500 fine in the tIRA and I just can't write it off?
This is correct too. But there is no benefit in putting a non-deductible contribution into tIRA when you could put the same money into Roth IRA.
I see. So if my AGI MAGI is above the 62k I do the Roth unless I reach 120k agi MAGI
AGI is a certain number. There are a number of "modified" AGIs that the IRS uses for different things. A modified AGI starts with the AGI and adds some things to it. Different things are added for different purposes.

I do not know what is added to the AGI for Roth IRA limits and for deductibility of tIRA contributions, but we can look them up if needed. And I believe there are some worksheets in Publication 590A that help you work through the numbers.
Saelina
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Re: transferring SEP IRA to vanguard solo 401k via fidelity

Post by Saelina »

retiredjg wrote: Wed Mar 07, 2018 11:01 am The number to get into the lower (15%) tax bracket for 2017 is $37,950. And yes, if you can get your taxable income below that number, you will be in the 15% tax bracket. Taxable income is found on line 43 of your Form 1040.

This is not the same as getting your MAGI low enough to deduct your IRA deduction though. This is what needs to be figured out before your taxes are filed.

It is possible your accountant is trying to get your income low enough for you to file for the saver's credit. This is something you might want to ask about.
The delay is because they were too busy to give me the initial numbers and I have to wait unti mid month for them. I probably should get a new accountant because most of the things I'm learning about for self-employed retirement accounts is happening here on the forum. They haven't suggested anything in that regard.


Rolling it into your tIRA would be fine as well. And if you would prefer to use Vanguard's Solo 401k you could do that and roll the SEP into the IRA, no problem.

Here is the only downside of using Vanguard's Solo 401k I can think of. Right now, you are under the $120k MAGI limit for contributing to Roth IRA. In other words, you can put your contribution into Roth IRA directly - you do not need the back door.

If your income goes up enough that you want to contribute to the Roth IRA but your income is too high, you will want to use the back door and you can't do that effectively with an existing tIRA. So there may come a time you would want to roll your tIRA into your Solo 401k. You can't do that at Vanguard.

Opening your Solo 401k at Fidelity would prevent that future problem (which may never even come to exist). I'm not saying this is what you should do. I'm only pointing it out because it is something you should be aware of. You are already working with Vanguard and if you want all your accounts there, you might want to not worry about your future ability to use the back door at this point.
I could always transfer it to fidelity at a later date if I wanted correct? I'd like to build up my assets at vanguard so I can keep that 50k balance for the trade discounts.

I read that Vanguard offers a Roth 401k, does that follow the same income restrictions?
Saelina
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Re: transferring SEP IRA to vanguard solo 401k via fidelity

Post by Saelina »

retiredjg wrote: Wed Mar 07, 2018 11:09 am
AGI is a certain number. There are a number of "modified" AGIs that the IRS uses for different things. A modified AGI starts with the AGI and adds some things to it. Different things are added for different purposes.

I do not know what is added to the AGI for Roth IRA limits and for deductibility of tIRA contributions, but we can look them up if needed. And I believe there are some worksheets in Publication 590A that help you work through the numbers.
Alright. So worse case scenario I can re-characterize the 5500 I put in for 2017 to roth contribution?

For my sep-ira contribution, i'm selling off individual stocks and depositing those funds. If I plan low like 30,000 taxable income I should be safe with a 5k contribution for now until I get my numbers? I know I have at least 15k in straight business expenses right off the top 65k I earned.
retiredjg
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Re: transferring SEP IRA to vanguard solo 401k via fidelity

Post by retiredjg »

Saelina wrote: Wed Mar 07, 2018 11:40 am
retiredjg wrote: Wed Mar 07, 2018 11:01 am The number to get into the lower (15%) tax bracket for 2017 is $37,950. And yes, if you can get your taxable income below that number, you will be in the 15% tax bracket. Taxable income is found on line 43 of your Form 1040.

This is not the same as getting your MAGI low enough to deduct your IRA deduction though. This is what needs to be figured out before your taxes are filed.

It is possible your accountant is trying to get your income low enough for you to file for the saver's credit. This is something you might want to ask about.
The delay is because they were too busy to give me the initial numbers and I have to wait unti mid month for them. I probably should get a new accountant because most of the things I'm learning about for self-employed retirement accounts is happening here on the forum. They haven't suggested anything in that regard.
If you are otherwise happy, I would not jump ship just yet.

If the 2017 IRA contribution is not entirely deductible, you may want to recharacterize your contribution (or part of it) to Roth IRA.

Or If you want to leave it, a form needs to be filed with your taxes (Form 8606) showing you made a non-deductible contribution. I would suggest this is not the best option. It would be better to not have any non-deductible contributions if you can avoid it.

If they just can't get to your taxes yet because of the rush, they may not know anything at this point. Mid- month is not too far away.


Rolling it into your tIRA would be fine as well. And if you would prefer to use Vanguard's Solo 401k you could do that and roll the SEP into the IRA, no problem.

Here is the only downside of using Vanguard's Solo 401k I can think of. Right now, you are under the $120k MAGI limit for contributing to Roth IRA. In other words, you can put your contribution into Roth IRA directly - you do not need the back door.

If your income goes up enough that you want to contribute to the Roth IRA but your income is too high, you will want to use the back door and you can't do that effectively with an existing tIRA. So there may come a time you would want to roll your tIRA into your Solo 401k. You can't do that at Vanguard.

Opening your Solo 401k at Fidelity would prevent that future problem (which may never even come to exist). I'm not saying this is what you should do. I'm only pointing it out because it is something you should be aware of. You are already working with Vanguard and if you want all your accounts there, you might want to not worry about your future ability to use the back door at this point.
I could always transfer it to fidelity at a later date if I wanted correct? I'd like to build up my assets at vanguard so I can keep that 50k balance for the trade discounts.
Yes, you could always move your Solo 401k to Fidelity at a later date if that seems beneficial.

What $50k balance for trade discounts? What do you plan to trade? There is no cost to trade the Vanguard funds at Vanguard. Isn't that all you have - Vanguard funds?

I read that Vanguard offers a Roth 401k, does that follow the same income restrictions?
No. The rules for 401k and IRA are not the same. A 401k does not have any income restrictions other than you have to make at least as much as you put in the 401k.
retiredjg
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Re: transferring SEP IRA to vanguard solo 401k via fidelity

Post by retiredjg »

Saelina wrote: Wed Mar 07, 2018 11:49 am
retiredjg wrote: Wed Mar 07, 2018 11:09 am
AGI is a certain number. There are a number of "modified" AGIs that the IRS uses for different things. A modified AGI starts with the AGI and adds some things to it. Different things are added for different purposes.

I do not know what is added to the AGI for Roth IRA limits and for deductibility of tIRA contributions, but we can look them up if needed. And I believe there are some worksheets in Publication 590A that help you work through the numbers.
Alright. So worse case scenario I can re-characterize the 5500 I put in for 2017 to roth contribution?
Yes. If your 2017 MAGI is too high, you can also recharacterize your 2017 contribution to Roth.

For my sep-ira contribution, i'm selling off individual stocks and depositing those funds. If I plan low like 30,000 taxable income I should be safe with a 5k contribution for now until I get my numbers? I know I have at least 15k in straight business expenses right off the top 65k I earned.
Are you asking about going ahead and making some of the 2017 SEP contribution before they tell you how much you can contribute? If so, I have no idea. I don't know how to calculate how much you can contribute. I would not be in a hurry though. Unwinding a mistake is at least twice as hard as getting it right the first time.
Saelina
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Re: transferring SEP IRA to vanguard solo 401k via fidelity

Post by Saelina »

retiredjg wrote: Wed Mar 07, 2018 12:24 pm
Are you asking about going ahead and making some of the 2017 SEP contribution before they tell you how much you can contribute? If so, I have no idea. I don't know how to calculate how much you can contribute. I would not be in a hurry though. Unwinding a mistake is at least twice as hard as getting it right the first time.
yes, that's what I was asking. I've sold off some of the stocks already. Is there a daily interest type of fund I should put it into for 2 -4 weeks until I get the figures?
retiredjg
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Re: transferring SEP IRA to vanguard solo 401k via fidelity

Post by retiredjg »

Where is the money now?
Saelina
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Re: transferring SEP IRA to vanguard solo 401k via fidelity

Post by Saelina »

retiredjg wrote: Wed Mar 07, 2018 5:10 pm Where is the money now?
Some of it is supposed to clear into my settlement fund in my vanguard brokerage, rest is scattered in other settlement funds or still in stocks I haven't sold yet.
retiredjg
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Re: transferring SEP IRA to vanguard solo 401k via fidelity

Post by retiredjg »

Isn't the settlement fund a money market fund? I'm asking because I don't have a Vanguard brokerage account so I don't have a settlement fund.
Saelina
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Re: transferring SEP IRA to vanguard solo 401k via fidelity

Post by Saelina »

retiredjg wrote: Wed Mar 07, 2018 5:57 pm Isn't the settlement fund a money market fund? I'm asking because I don't have a Vanguard brokerage account so I don't have a settlement fund.
That's how it's labeled, yes.

My accountant said 7k is safe to invest in the Sep for now until I finalize the numbers. Should I just put in the target retirement fund in this account for now?
retiredjg
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Re: transferring SEP IRA to vanguard solo 401k via fidelity

Post by retiredjg »

I don't know what you should invest in because I don't know what you already have. But a target fund is generally a fine idea for a temporary investment. Or a permanent investment for that matter.
Saelina
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Re: transferring SEP IRA to vanguard solo 401k via fidelity

Post by Saelina »

retiredjg wrote: Sat Mar 10, 2018 8:56 am I don't know what you should invest in because I don't know what you already have. But a target fund is generally a fine idea for a temporary investment. Or a permanent investment for that matter.
My portfolio currently:

Brokerage :
(tier 2 savings) VWINX Vanguard Wellesley® Income Fund Investor Shares ER:0.22% $11,393.07

VWO VANGUARD FTSE EMERGING MARKETS ETF ER:0.14% $1,356.04
^^selling this and putting in SEP


Traditional IRA Total $18,473.49
VBMFX Vanguard Total Bond Market Index Fund Investor Shares ER: 0.15% $4,976.21
VTIAX Vanguard Total International Stock Index Fund Admiral Shares ER:0.11% $10,273.96
PRMTX T. Rowe Price Media and Telecommunications Fund ER:0.79% $3,197.70


Roth IRA $26,071.34
VTSAX Vanguard Total Stock Market Index Fund Admiral Shares ER:0.04% $26,071.34

SEP IRA
7k total going in
retiredjg
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Re: transferring SEP IRA to vanguard solo 401k via fidelity

Post by retiredjg »

Saelina, it would not be wrong to put your SEP into a target fund.

If you are wanting help with your portfolio, more information is needed (things like tax bracket, desired stock to bond ratio, annual contributions, etc.) You should start a new thread and use the format we use for helping people with their portfolios. See the link at the bottom of this message for how to do that.
Lafder
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Re: transferring SEP IRA to vanguard solo 401k via fidelity

Post by Lafder »

Congratulations that you have self employment income.

In general a solo401k allows you to contribute more pretax than a SEP because you get to contribute as the employee AND as the employer. So for the same income, you can contribute more to the solo401k.

Both allow you to make contributions for the prior tax year up to your tax filing deadline. But you are correct that you must open a solo401k in the tax year, so it is too late for 2017 to do a solo401k.

What I would do, while waiting on your accountant, is go ahead and open a solo401k at Fidelity for 2018 so it is ready for your 2018 contributions.

You can have a SEP and Solo401k at the same time, but you can only contribute to one or the other for the same tax year. So for you, 2017 to the SEP, 2018 to the solo401k.

Once you get your SEP contributions done, based on what the accountant tells you, you can transfer your SEP to your solo401k at Fidelity. (Vanguard won't allow you to roll your SEP into your solo401k so don't waste your time with a Vanguard solo401k)

And you can start your 2018 Solo401k contributions once the account is open.

If your income exceeds the allowed max for direct Roth contributions, you can do a backdoor Roth. But you will need a zero SEP and other IRA balance or it gets really complicated to do a back door Roth. It is fine to have 401k for a back door Roth.

For your 2017 income, you could have put away more if you had a solo401k. Solo401k is approximately 18,000 employee plus approx 20% employer contribution. So about 18k better than a SEP for many income ranges.

Fidelity has lower expense ratios for their solo401k than Vanguard, so lower cost. Note, to confuse things even more, my solo401k at Fidelity is also called a Keogh plan.

lafder
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